American Express
CEO Stephen Squerry was born and raised in New York. He grew up in Astoria, Queens, graduated from Manhattan College (which happens to be the Bronx), and now sits in an office atop the American Express Tower in lower Manhattan with gorgeous views of New York City’s harbor.
As a New Yorker himself, Squerry knows about managing through crises, which he noted in his letter to shareholders released this week:
“While there are uncertainties in the macroeconomic environment, we have the right strategy and team in place to navigate changes to the operating environment. Our company has weathered recent events, including the September 11 terrorist attacks, the Great Financial Crisis and the Covid-19 pandemic. Has shown resilience in the face of disruption over the years.
In the wake of each of these disruptions, Squerry says, “we have emerged as a stronger, more focused company, and that is due to our commitment to supporting our associates and our customers.”
With the country’s banking system under pressure, the CEO may be looking at one of those “change in operating environments”.
Just before the banking sector meltdown, I met Squery at his offices. While neither of us foresaw the trouble to come, I was able to ask him about the current situation by email; That exchange is the first question and answer below. What follows are edited excerpts from our conversation, where he talks about his five years running American Express (ticker: AXP) and his outlook for the road ahead.
Baron’sHow do the Silicon Valley Bank failure and ensuing issues affect American Express?
Stephen Squery: As a globally integrated payments company, we have a very different business model from traditional regional banks. We have strong capital and liquidity levels, supported by our broad and well-diversified funding mix.
American Express CEO Stephen Squerry at the company’s New York City headquarters.
Photo by Brian Derballa for Barron’s
What has driven your business over the years?
We’re firing on all cylinders right now. Back to Pandemic I think a lot of people weren’t sure what was going to happen with the economy and so on. We decided to invest not only in our associates, but also in our customers. We never stop engaging with our customers, we never stop making sure we’re keeping our customers and acquiring new customers. We kept the engines running.
As we go into 2022, we had the best year in company history, we grew revenue by 25% and our billings increased by 25%. We generated $9.85 in revenue [per share] for 2022 [above guidance.] We carried on that momentum with a three-year growth plan with 15% to 17% guidance for revenue [this year.]
And what is the outlook for MX?
We are a little different from everyone else. We largely cater to a premium customer base: premium consumers, premium small businesses and large and global corporations. There are many things that fascinate me. We believe the payments space has 8% to 9% CAGR globally for the foreseeable future. In the consumer business, we’re doing a great job of bringing Millennials and Gen Zers into our franchises. Sixty percent of the cards we acquired in 2022 were from Millennials and Gen Z, and 75% of them in the US had either a gold or platinum card.
Does client activity indicate a recession is coming?
We are looking at a bifurcated economy right there. When you look at our card base, which is far more premium, our numbers show that spend is still there. I can only do what we are seeing within our base. And we’re seeing spend that remains within our expectations.
As long as you’ve been in this business, as long as we have, you know two things: There will be a downturn, and then there will be a recovery. We run this business for the medium to long term. You can only run a business on what you see now, not what you think could be. Having said that, we always have aggressive plans for when we need to pivot. In fact, during the pandemic we had a recession plan, or rather a credit cycle plan. And we took that off the shelf for the pandemic. And it worked really well for us. This includes tightening some credits where we need them, shortening some lines and things like that.
Wait, So You Have a Plan for a Shelf-Registration Slump?
You can think about it this way. We got the idea to do this many years ago, because we’ve always had cyber simulations. And we said, ‘Jeez, what about a credit cycle plan?’ And that has turned into a recession plan.
How does it feel to have Warren Buffett as your largest shareholder?
I talk to her a lot. His advice to me during the pandemic is to protect things; Protecting your customers and protecting your brand is why we invested during the pandemic. It would have been very easy to step back, but we invested more in the value proposition for our customers, we invested in our associates, and we invested in our brand. I’ll talk to Warren maybe once every other month, and I’ve had the privilege and pleasure to go out and see him and sit with him, it’s really quite thrilling. You talk about tremendous experience, tremendous insight and making that available to you. You pick up the phone This is very special.
Important question, Steve: Why should an investor buy or hold your stock?
Look, if you prefer a high revenue growth company with mid teen EPS growth, and has a great track record for many years and plays in a growth industry as a global company with a premium customer base, So you might want to think about it.
Write to Andy Server at [email protected]